Investor Lawyers Blog

SEC Charges Ex-Microcap CEO and Boiler Room Operator in $20M Penny Stock Fraud to Bilk Senior Investors

Published on: September 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging ex-Samoyedic’s Inc. and Fun Cool Free Inc. founder Craig V. Sizer and boiler room operator Miguel Mesa with involvement in a $20M penny stock scam to bilk senior investors and others. At least 600 investors were allegedly victimized in the fraud. The two men have consented to partial settlements of the civil charges accusing them of violating broker-dealer registration and anti-fraud provision of federal securities laws. However, they are not admitting to or denying the claims.

According to the Commission, Sizer hired Mesa to draw in and bilk investors in both his companies. Mesa ran boiler rooms in California and Florida. Sizer gave Mesa pitch points for boiler room agents to use when selling stock shares. The points included alleged misrepresentations, including that investor money would go toward development and research but not toward commissions. Sizer also purportedly solicited investors by phone using the same misrepresentations and omissions to sell company shares.

Unfortunately, contends the regulator, the two men misappropriated about 90% of the money raised for their own enrichment and to pay the agents their sales commissions of 15-20%. Sizer is accused of using at least $3M on his own spending.

Aozora Bank Asks NY Appeals Court to Revive $1.5B CDO Fraud Case Against Credit Suisse

Published on: September 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Aozora Bank Ltd. has asked a New York appeals court to allow it to sue Credit Suisse (CS) again over losses that it claims it sustained from a $1.5B collateralized debt obligation. The Japanese lender claims that a lower court erred in dismissing the claims it had previously brought on the grounds that they were submitted too late.

It was last year that New York Supreme Court Judge Charles E. Ramos threw out the CDO fraud lawsuit on the grounds that the state’s statute of limitations had already passed. In New York, fraud claims can be brought within two years from when a plaintiff could have, with reasonable diligence, realized that it was defrauded or within six years of when a transaction had closed.

Aozora believes that Credit Suisse employed a “trash bin” for its assets that were toxic. The Japanese lender purchased the Jupiter High-Grade CDO V Ltd CDO notes for $40M on 5/11/07 but did not file it’s case until 6/26/13. Ramos said that Aozara failed to prove that there was no way it could have discovered the problems with the Jupiter V notes that it purchased from Credit Suisse before that filing date.

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FINRA Sanctions Avenir Financial Group For Fraud

Published on: September 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has ordered Avenir Financial Group to pay a $229K fine over allegations that the latter engaged in the fraudulent sale of promissory notes and equity interests in the firm. Avenir is suspended from taking part in the self-offerings of securities for two years.

According to the FINRA hearing panel, the firm, its ex-CEO/CCO Michael Todd Clements, and registered representative Karim Ahmed Ibrahim, also known as Chris Allen, purposely omitted or misrepresented material facts related to the sale of equity interests in the firm. Avenir is accused of making misrepresentations when selling debt and equity interests in the holding company of its branch office.

The FINRA ruling said that in 2013, Avenir solicited investors through funds via an equity self-offering because the firm needed capital. The self-regulatory organization said that Clements told Ibraham to tell customers that this money would go toward day-to-date operations and growth at Avenir but did not tell him about the firm’s financial issues and certain other information.

US Appeals Court Revives JPMorgan Whistleblower’s Lawsuit

Published on: September 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The 2nd U.S. Circuit Court of Appeals has revived the lawsuit brought by a whistleblower who accused JPMorgan Chase & Co. (JPM) of firing her for cautioning that a client might be engaging in money laundering and fraud. Jennifer Sharkey was a private wealth manager and vice president at the firm when she was let go in August 2009.

Sharkey claims that she was terminated a week after telling JPMorgan that they needed to pay attention to “red flags” and let go of the client who was responsible for about $600K of yearly billings. She sued her former employer after she was fired.

Last year, U.S. District Judge Robert Sweet in Manhattan threw out the case. Sweet said that the firm may have let Sharkey go for other reasons, including allegations that she lied about communications with another client or her performance was poor. Sharkey has countered that she did not lie.

Hedge Fund Manager Faces SEC Charges For Insider Trading

Published on: September 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed insider trading civil charges against Leon G. Cooperman and his Omega Advisors. According to the regulator, the hedge fund manager made illicit profits when he bought Atlas Pipeline Partners securities right before it sold its natural gas processing facility in Oklahoma.

Cooperman is accused of using his position as one of Atlas Pipeline’s biggest shareholder to obtain confidential information about the upcoming sale. This, even after Cooperman and his firm had agreed not to to make trades using the information he was given. When the sale of the facility, for $682 million, was announced publicly, Atlas Pipeline’s stock price went up by over 31%.

The SEC, in its complaint, said that when Cooperman’s firm was sent a subpoena regarding its trading involving Atlas Pipeline securities, Cooperman allegedly spoke to the executive who had given him the nonpublic information and attempted to make up a story about the trading. The executive was reportedly upset to find out that Cooperman had traded before the announcement of the sale.

Broker Who Stood To Inherit 91-Year-Old Customer’s Condo is Barred by FINRA

Published on: September 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred ex-broker Douglas Wayne Studer after it was discovered that he was named to inherit a 91-year-old customer’s Florida waterfront condominium. FINRA’s investigation, which began last year, sought to determine whether he violated his ex-employer’s policy by being named in the estate documents belonging to the elderly investor.

Without denying or admitting to FINRA’s allegations Studer agreed to the sanction. Until July, Studer had worked for Kovack Advisors Inc. since last October.

SEC Cases: Blank Check Maker is Accused of Fraud, Alleged Scam Involving Company That Makes Containers to Grow Marijuana Faces Civil Charges, & Retail CEO and Promoter Accused of Fraudulent Marketing Campaigns

Published on: September 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Florida Man Implicated in Scam Involving Black Check Companies’ Stocks

The U.S. Securities and Exchange Commission has filed civil fraud charges against Sheldon R. Rose. The Florida man established over a dozen blank check companies, which the SEC contends are worthless and have no operations despite that they are registered to sell stock.

According to the regulator, Rose appointed relatives and friends as figurehead officers and shareholders but concealed that he was the one controlling the entities and their securities. Although corporate filings made it seem as if the companies were legitimate startups, the SEC contends that this was only so that reverse mergers could be conducted, the securities could be sold, and Rose and others could profit illicitly.

In addition to settling the civil charges, Rose is barred from engaging in penny stock offerings in the future or working as a director/officer of a public company. He also faces criminal charges.

Rose’s civil case is connected to the one that the SEC filed last year against 10 individuals in a penny stock scam involving blank check companies headed for reverse mergers.

SEC Awards Whistleblower $4M

Published on: September 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.

In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs.

Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips.

Deutsche Bank and DOJ Still In Negotiations Over Mortgage-Backed Securities Case

Published on: September 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) and the U.S. Department of Justice have yet to reach a settlement over allegations about the way that the German lender packaged toxic mortgages leading up to the 2008 financial crisis. According to The Wall Street Journal, The DOJ wants the bank to pay $14B. Deutsche Bank, however, said it has no plans to pay “anywhere near the number cited” and sees that figure as a starting point in negotiations.

In a statement, the firm said that it expected the final figure to be much lower and closer to what other banks have paid over similar allegations. InvestmentNews reports that it has not been uncommon for the DOJ in its investigation into MBSs to first put forward higher penalties than the eventual settlement that is reached.

Other firms and their deals over their mortgage lending activities include Bank of America (BAC) for $16.7B, Citigroup (C) for $7B, JPMorgan Chase (JPM) for $9B, Goldman Sachs (GS) for $5.1B, and Morgan Stanley (MS) for $3.2B. Goldman Sachs admitted to wrongdoing when it settled claims that it did not properly vet MBS before selling them as quality debt to investors.

Man Who Ran Pump-And-Dump Scam Linked to Notre Dame’s “Rudy” Gets Prison Term

Published on: September 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Chad Peter Smanjak has been sentenced to a year and a day in prison. Smanjak admitted to operating a pump-and-dump scam linked to a company founded by Daniel Ruettiger, also known as Rudy. Ruettiger’s time playing football at Notre Dame was retold in the movie “Rudy.”

Smanjak is accused of targeting over 250 investors in his penny stock scam, which made at least $5M in profits. Although he had co-conspirators, Smanjak was the only person indicted in this securities case.

The penny stock in the scam was issued by Rudy Nutrition, which Ruettiger founded. The sports drink company claimed it was selling health conscious drinks.